US Treasury Secretary Timothy Geithner defended the Obama administration's initiative to aid small business lending on Wednesday, blaming delays in disbursing capital to banks on a cautious approach by regulators. Geithner, testifying before the US House of Representatives Small Business Committee, fielded questions from lawmakers as to why none of the $30 billion in capital for small banks in the program had been disbursed.
The programme was approved by Congress last December. "I wish it were otherwise, but we're doing what you would expect us to do," Geithner said. "We are being careful with the taxpayers' money." He said that bank regulators, which must approve the requests before passing them onto Treasury, wanted to ensure that capital was not disbursed to banks that are not viable.
"We can't justify helping to keep them alive," Geithner said of such banks. The Treasury chief said that so far, the program has received 869 applications from banks for about $11.6 billion in capital, or just over one third of the available funds. Treasury will soon begin to disburse funds from the program, which aims to leverage $300 billion in new bank loans to small firms, which are considered an engine of job growth in the US economy.
Under the program, banks will pay interest rates for the funds ranging from 1.0 percent to 5.0 percent. The more they increase their lending with the funds, the lower the rate they will pay. Several lawmakers on the Republican-controlled House panel also suggested that small businesses may increase hiring if they had more certainty about the federal budget deficit and their future taxes.
Geithner agreed, but said a bigger challenge was uncertainty about the strength of US recovery and said a budget deal needed to protect growth. Geithner said small companies faced heavy challenges because so many were concentrated in sectors like construction and real estate that were hit especially hard by the recession and bursting of the real estate bubble.